What Happens to Your Finances if You Lose Mental Capacity?
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The loss of mental capacity is something few of us want to imagine, but it’s an essential consideration when planning for the future. If an individual loses the ability to make decisions for themselves, their finances can become frozen, leading to significant challenges for their loved ones. Understanding the legal and financial processes involved, including applying for deputyship, and the associated costs can highlight why proactive planning through a Property and Financial Affairs Lasting Power of Attorney (LPA) is so important.
What Happens When You Lose Mental Capacity?
When someone loses mental capacity due to illness, accident, or age-related conditions such as dementia, they are no longer able to manage their own financial affairs. This can include:
• Paying bills and managing day-to-day expenses.
• Handling investments or managing a pension.
• Selling or remortgaging property if required.
• Accessing funds for care costs or emergencies.
Without a legal framework in place, such as a Lasting Power of Attorney, even immediate family members cannot step in to manage finances on the individual’s behalf. Instead, they must apply to the Court of Protection to become a deputy, a process that is time-consuming, costly, and often stressful.
The Deputyship Process
When no LPA exists, an application for deputyship must be made to the Court of Protection. This involves the following:
1. Filing the Application:
A family member or close friend applies to become a deputy. This requires completing extensive forms, providing personal information, and detailing why they are suitable to take on the role.
2. Medical Evidence:
A professional, such as a GP or consultant, must complete a medical assessment form confirming the individual’s lack of capacity.
3. Court Review:
The court reviews the application and may request additional information, which can delay the process further.
4. Grant of Deputyship:
If the court approves the application, the deputy will be issued a court order outlining the specific decisions they are authorised to make.
Timescales and Costs Involved
The deputyship process can take 6-12 months to complete, leaving the individual’s finances in limbo during this time. For families needing immediate access to funds to pay for care or other essential costs, this delay can be incredibly distressing.
Application Costs
Applying for deputyship in the UK involves several costs. As of May 2024, the Court of Protection application fee is £408.00. If the court determines that a hearing is necessary, an additional fee of £494.00 applies.
New deputies are also required to pay an assessment fee of £100.00. After appointment, deputies must pay an annual supervision fee, which is £320.00 for general supervision or £35.00 for minimal supervision, depending on the level of oversight required.
If legal assistance is sought for the deputyship application, solicitors’ fees can vary. Some firms charge a fixed fee; other firms may charge based on the complexity of the case, with fees ranging from £1,500.00 to £3,000.00 plus VAT and disbursements. These legal fees are generally paid from the assets of the person who has lost capacity.
It’s important to note that these costs can accumulate, making the deputyship process both time-consuming and expensive. Establishing a Lasting Power of Attorney (LPA) in advance is a more cost-effective and efficient way to ensure that your financial affairs are managed by someone you trust, should you lose mental capacity in the future.
Real-Life Example
Consider the case of Margaret, a 75-year-old woman who developed Alzheimer’s disease. Her daughter, Lisa, assumed she could access her mother’s accounts to pay for care home fees. However, without an LPA, the bank froze Margaret’s accounts.
Lisa applied for deputyship, but the process took nearly nine months. During this time, Lisa had to borrow money to cover her mother’s care fees and utility bills. By the time the deputyship order was granted, the estate had incurred nearly £2,000.00 in legal and court fees, in addition to the ongoing annual supervision costs.
Had Margaret arranged an LPA when she first started experiencing memory issues, Lisa could have seamlessly managed her finances without the delays and additional costs.
The Role of a Property and Financial Affairs Lasting Power of Attorney (LPA)
An LPA is a legal document that allows you to appoint one or more trusted individuals (attorneys) to manage your finances and make decisions on your behalf should you lose mental capacity or once registered, be used to allow an attorney to support you with your day-to-day finances.
With an LPA in place:
· Your attorneys can immediately step in to manage your finances if required.
· The process is far simpler, quicker, and less costly than applying for deputyship.
· You retain control over who manages your affairs, rather than leaving it to the court to decide.
The Health and Welfare Lasting Power of Attorney (LPA)
Although not the main feature of this blog post, it is important to note that there are two types of LPA. A Health and Welfare LPA allows the appointed attorney(s) to make decisions about your health and personal welfare if you lose mental capacity.
Decisions Covered may include:
· Medical care and treatment.
· Living arrangements (e.g., whether to move into a care home).
· Day-to-day matters, such as diet and daily routines.
· Consent or refusal of life-sustaining treatment (if explicitly authorised in the LPA).
While the Property and Finance can be used immediately once registered, the Health and Welfare LPA can only be used when the person who made the LPA (the donor) has lost mental capacity.
Benefits of a Property and Financial Affairs LPA
1. Immediate Access:
Attorneys can act as soon as needed, ensuring bills are paid, and assets managed without disruption.
2. Cost-Effective:
Registering an LPA costs £82.00 (per LPA in England and Wales), significantly less than the fees associated with deputyship. Professional fees may be payable should you seek support.
3. Control and Peace of Mind:
You decide who manages your finances, and you can set specific instructions or preferences for how your money should be used.
4. Avoiding Court Delays:
Your family will not need to go through the lengthy court process, saving time and emotional stress.
Planning Ahead
An LPA is a simple yet powerful tool to ensure your finances are managed smoothly if you lose mental capacity. While no one wants to think about such a scenario, planning ahead can save your loved one’s significant time, stress, and money.
Conclusion
Losing mental capacity can have far-reaching consequences for your financial wellbeing and your family’s peace of mind. The deputyship process is a costly, time-consuming alternative that can be avoided by setting up an LPA.
If you’re considering future-proofing your finances, now is the time to act. An LPA may seem like a small step, but it’s a significant safeguard for your financial future and your family’s peace of mind.